Book-Tax Relations of Large Australian Companies

Abstract

Using the data from the corporate tax transparency reports of entity tax information released by the Australian Taxation Office for the three income years 2013-14 to 2015-16, this study investigates the relations between (a) ‘taxable income’ in corporate tax return and ‘profit before tax’ in financial report and (b) ‘tax payable’ in corporate tax return and ‘tax expense’ and ‘current tax expense’ in financial report, as well as other variables that may explain these book-tax relations. This study finds that on average a 1% increase in profit before tax from continuing operations is associated with 0.66% increase in taxable income. On average a 1% increase in tax expense in income statement is associated with 0.71% increase in tax payable in tax return, and a 1% increase in current tax expense is associated with 0.95% increase in tax payable in tax return. Profits from discontinued operations, profits attributable to non-controlling (or minority) interests in the corporate group, the extent of foreign operations and the tax losses carried forward indicator also explain these book-tax relations.